FEDERAL TAX CONSIDERATIONS 4 LIFE INS & ANNUITIES

An insured has a Modified Endowment Contract. He wants to withdraw some money in order to pay medical bills. Which of the following is true?

He will have to pay a penalty if he is younger than 59 1/2.

If an insured surrender's his life insurance policy, which statement is true regarding the cash value of the policy?

It is only taxable if the cash value exceeds the amount paid for premium

Which of the following is NOT true regarding policy loans?

Money borrowed from the cash value is taxable.

If an IRA annuitant pays the entire fund's premiums before her death, what effect will this have on her estate when she dies?

The entire value of the premiums and benefits will be included.

An annuitant dies before the effective date of a purchased annuity. Assuming that the annuitant's wife is the beneficiary, what will occur?

The interest will continue to accumulate tax deferred.

What is the penalty for IRA distributions that are below the required minimum for the year?

50%

Which concept is associated with "exclusion ration"?

Annuities payments

Which of the following is true regarding taxation of dividends in participating policies?

Dividends are not taxable.

An applicant buys a nonqualified annuity, but dies before the starting date. For which of the following beneficiaries would the contract's interest NOT be taxable?

Spouse

Which of the following is used to determine the annuity amounts that are not taxable?

Exclusive ration

When a beneficiary receives payments consisting of both principal and interest portions, which parts are taxable as income?

Interest only

What part of the Internal Revenue Code allows an owner of a life insurance policy or annuity to exchange or replace their current contract with another contract without creating adverse tax consequences?

Section 1035 Policy Exchange

Which of the following best describes taxation during the accumulation period of an annuity?

Taxes are deferred

A policyowner cancels his life policy but instructs the insurance company to transfer the cash value of his policy to an annuity. This nontaxable transaction is called

1035 exchange

Which of the following terms is used to name the nontaxed return of unused premiums?

Dividend

In a direct rollover, how is the money transferred from one plan to the new one?

From trustee to trustee

In life insurance policies, cash value increases

Grow tax deferred.

What is the main purpose of the Seven-pay Test?

It determines if the insurance policy is an MEC.

For an individual who is NOT covered by an employer-sponsored plan, IRA contributions are

Tax deductible.

During the accumulation period in a non qualified annuity what are the tax consequences as of a withdrawal

Taxable interest will be withdrawn first and the 10% penalty will be imposed if under 59 1/2.

When would life insurance policy proceeds be included in the insured's taxable estate?

When there are any incidents of ownership at the time of death

J transferred his life insurance policy to his son two years before his death. Which of the following is true?

The entire face value of the policy will be included in J's taxable estate if transferred within 3 years.